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Hi John,
Refer to Dec 2012 / Jun 2013 /Dec 2013, the premium/ gain for the target shareholders is the current share price of the bidder over the share price of the target?
Or the combined share price over the price of the target?It depends very much on the wording of the question.
For the shareholders of the company being acquired – they will probably calculate it by reference to the current share price (because they will not have access to the information about synergy etc.)
For the acquiring company it will probably be calculated by reference to the new share price (because they do have knowledge of the future prospects of the combined company).The important thing in the exam always is to state your logic and your assumptions – the marks in P4 are not for the final answer but for you proving in your workings that you understand the situation.
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